Market Briefing For Thursday, November 17
Exhaustion and consolidation were indeed the expectation for later this week after fantastic down (overnight) and up Brixit-style post-Election responses, followed by monstrous rotation from the sale of FANG-type stocks (FB, AMZN, NFLX, GOOGL), while Financials and Oil revived leadership.
There is more going on including the movement of the Dollar over 'Par', and the Oil move which has oscillated with every 'presumed' twist to the ongoing saga among OPEC members (which cheat and are absolutely insincere in terms of any cohesive enduring production cut unless it benefits them). The nefarious heart of this was of course Saudi Arabia, first pretending they want stability, then moving to threaten the United States should be stop buying from them, only to be sideswiped by Nigeria saying they, along with Iran and Iraq, probably won't even attend the upcoming Doha OPEC meeting. Our view remains not to get bearish on Oil when it presses 40 (or especially if it drifts below); and not to get bullish after it (ultimately will) newly pushes the 50's.
We have suggested that the Election (or political debate) is a non-issue, that the economy can't recover dramatically because of heavy damage done by decades of deconstruction of our workforce and manufacturing, but as the focus shifts a bit away from globalism or the 'we're all in this together' worldview (as President Obama again expressed in Athens on Tuesday, to the chagrin of protesters there who blame him and Clinton, in large part, not just for the EU mess, but for pulling the 'cork out of the Libyan bottle', which allowed the flood of migrants (beyond Syria) upon their shores. It's not their problem alone but it's one largely US created. Incidentally this contributes to the rise of populism in Europe more so in fact than the United States.
In New York talk about an 'Infrastructure Bank' was music to the ears of Wall Streeters salivating about the idea of 'more debt'. Again, that this is so challenging it will not be Trump's fault (if it's organized properly as we'd suspect it will be since these guys are builders not destroyers) but is a holdover of such extremely bloated debt which levitated financial sector assets at the expense of truly stimulating the private sector for years. It leveraged the Nation without much return and that's not a good thing. It may in fact require congratulations two years from now if Washington is able to work around the heavy weight of debt, and pull us higher.
Daily action was initially down ahead of an overall up-down-up sort of consolidating but recovering session, as Oil roiled markets that revived. By the time all was said-and-done the futures were off just mildly, with a lot of Indexes finishing about mid-range for their trading sessions.
I do believe there are impending risks domestically and abroad, not the least of which is the behavior of Oil, or for that matter that of China as it tends to switch its perspective faster than Donald Trump went from just sounding like a demagogue during the campaign to a Democrat after.
We're on-guard for exhaustion or retrenchment from lots of risks that seemingly were brushed-aside by the enormous relief rally, while at the same time we envision downside liability (barring black swan events of course) comparatively limited to what it would have been had 'status quo' policies that diminished entrepreneurship or even American energy to a degree (as so many were decisive not inclusive, opposite of how it was presented to citizens, not to mention focus on wealth redistribution) prevailed.
We're not naively saying all will work out or that the market is valuing a few of these risks too low at the moment as sure we must worry since it is such a deep hole the Nation will try to dig out of without breaking lots of relationships that risk destabilizing other countries, while the priority just has to be looking out for our own working class and private sector.
Free market capitalism may be tougher but 'price discovery' lessons to a degree have been forgotten by this central-bank-dominated society. It is important that this turnaround which sees the Trump Administration as the 'champion of the little guy' (many Republicans still don't grasp it as a seminal fight for the recovery of both the Reagan or Lincoln eras), be successful; as it really is the last chance for the United States to take the global lead (Britain took a step with Brexit but this is a bigger deal); to show the value of pragmatism versus anything ism (including what's called populism which can, but need not, reflect a demagogue leader) to derail the powers of globalism and low ambition for individuals; and to empower the necessary revitalization to cope with demographic change or even financial tsunamis, which haven't vanished, but can essentially be mitigated if we get some serious growth over the next several years.
Incidentally, keep in mind the prevailing view was that a Trump victory in the Election, would spur an uncertainty-based Dollar rout. As suggested I saw it differently, including the next phase of our 4-year upside Dollar call from 79 to 'par'. As the Dollar is at 100; this does NOT compel Fed retention of near-zero interest rates; and sort of clears the deck to hike, if they ever plan to. We should hear more along those lines tomorrow.
Bottom-line:
We've entered an exhaustion / consolidation phase but I would not get too excited about a robust decline as of yet. Yellen is ahead and that could either be a bit of a shake or a relief after testimony is behind. Either way the market is more overbought and pending some correction, but at the moment it's a sort of friendly rotation holding up.
Disclosure: None.